AT&T may be forced into Comcast marriage

Sep 3, 2001  •  Post A Comment

AT&T Corp.’s largest institutional investors have told the company they will only settle for an outright sale of its broadband unit and will not support a spinoff, possibly forcing AT&T back to the negotiating table with Comcast this month.
According to well-placed industry sources, the powerful institutional investors include Capital Research Management, Fidelity, Alliance Capital and Franklin.
None of the firms, which represent more than a 10 percent stake, or AT&T would comment on their position.
In fact, there is growing speculation that discouraged institutional and individual shareholders of the widely held stock could side with the institutional leaders, blocking AT&T’s spinoff option. AT&T said it postponed the planned spinoff of the broadband unit as it explores potential sale and partnership options following its rejection of Comcast’s $58 billion bid for the unit.
Without a spinoff option, AT&T would have to leave broadband as part of its overall company in defiance of its own breakup plan. Or it would be forced to sell the unit. AT&T continues to decline comment on its talks with prospective buyers and its lack of discussions with the only certified bidder, Comcast Corp.
While Cox Communications has signed a confidentiality agreement to explore a possible purchase of AT&T Broadband, well-placed industry sources say Cox does not have the financial wherewithal to exceed Comcast’s rejected $58 billion bid and has no obvious equity partners to help in making one. Cox and AT&T declined comment on their talks.
Industry sources say Vivendi Universal has approached Cox about backing its bid for AT&T Broadband, although Vivendi’s own USA Networks last year sold its U.S. over-the-air television stations. Vivendi did not comment.
The Walt Disney Co. is only interested in a highly conditioned stake in AT&T Broadband that would ensure it carriage for its existing and future program services. And Microsoft Corp. is only interested in jumping into the fray to block a bid from AOL Time Warner should it surface as a bidder-a prospect most industry experts consider unlikely due to the regulatory concerns such a move would raise.
Mr. Armstrong is expected to make a preliminary report to AT&T board members this week about the status of his search.
As Mr. Armstrong approaches a regularly scheduled AT&T board of directors meeting the third week in September, he will have to have a concrete alternative bidder in hand or be prepared to conduct serious discussions with Comcast, which says its unsolicited stock and cash offer is “still good.”
Comcast declines comment on how or if it would sweeten its offer but is believed to have already talked to AOL Time Warner and other cable concerns about how they could support Comcast’s bid in exchange for valuable considerations.
AT&T had other problems last week, not the least of which was finding a solution to its majority-owned and near-bankrupt Excite@ Home service.
At a board meeting last Thursday, Excite@Home’s directors hired a new financial adviser to explore its financial options. The company also said it would not be able to meet the demands of its largest noteholder, Promethean Investment Group, to repay $50 million of its total $100 million financing by Aug. 31.
Excite@Home is considering a number of restructuring plans and the possible filing for Chapter 11 bankruptcy protection, perhaps as early as this month. Promethean and other lenders could force the Internet service provider into bankruptcy.
Meanwhile, Comcast and Cox Friday notified Excite@Home they are exercising their rights under existing distribution deals to terminate their pacts to ensure that their subscribers have uninterrupted service. Cox and Comcast expect to gradually assume control of ISP service to their subscribers and already are committed to providing multiple ISP choices. They are in trials with Earthlink, Juno and AOL.
In addition to filing for bankruptcy, Excite@Home could seek additional funds from AT&T, which would not be responsible for the firm’s existing debt if it provided new funds after a Chapter 11 filing, sources say.
It also is possible a white knight could come to Excite@Home’s rescue. Last week, former Clinton White House Chief of Staff Mack McLarty expressed interest in funding the beleaguered company. Mr. McLarty’s consulting firm, Kissinger, McLarty Associates, could head an investor group that would take a minority or majority stake in a reorganized Excite@Home. The principals declined comment.